Volkswacht Bodensee - OECD raises US, eurozone growth targets as world economy 'resilient'

The gradual implementation of new trade policy barriers, political uncertainty and declining investment had put the brakes on growth, but demand had held up astonishingly well, it said in its latest world economic outlook report.

Easier global financial conditions, supportive macroeconomic policies, real income growth, and strong demand for new AI-related investments, particularly in the US, was supporting demand, the organisation said.

American gross domestic product (GDP) growth is now estimated at 2.0 percent in 2025, 0.2 points more than in the OECD's previous outlook, published in September.

For the eurozone, the OECD now forecasts 1.3 percent growth, 0.1 points more than in September.

The world economy overall is on course for 3.2 percent growth in 2025, down from 3.3 percent last year, before slowing to 2.9 percent next year, and rebounding again in 2027, when a 3.1-percent expansion is forecast.

US growth will taper off to 1.7 percent next year, while eurozone growth is likely to come in at 1.0 percent. Both estimates are better than what was forecast in September.

China is set for 5.0-percent growth in 2025, 0.1 points above the September estimate.

"The global economy has shown surprising resilience in 2025," the OECD said.

Growth is, however, expected to soften during the second half of this year, as higher tariffs translate into higher costs for businesses and consumers, and elevated geopolitical and policy uncertainty continues to weigh on domestic demand.

Global growth is then expected to recover through 2026, helped by the fading impact of higher tariff rates, favourable financial conditions, supportive macroeconomic policies and lower inflation, with emerging-market economies in Asia continuing to account for the majority of global growth.

But there are downside risks, as the outlook "remains fragile", the OECD cautioned.

"A further rise in trade barriers, especially around critical inputs, could inflict significant damage on supply chains and global output," it said.

"High asset valuations based on optimistic expectations of AI-driven corporate earnings pose a risk of potentially abrupt price corrections," it said, also warning that fiscal vulnerabilities may push long-term sovereign yields higher, tightening financial conditions and hampering growth.

J.Marty--VB